Blanket Loans And Cross-Collateralisation

Owners with several properties are sometimes offered a single loan secured by all of them. The structure has real advantages and a set of constraints that surface later.

How the structure works

One loan is written and each property in the group grants security for the whole amount. The lender's claim reaches every asset rather than being confined to one.

Underwriting is done on the combined income and combined value, which can allow a property that would not support standalone financing to be carried by stronger ones alongside it.

Administration also consolidates. One payment, one set of covenants and one reporting cycle replaces a separate relationship for each building.

Why lenders sometimes prefer it

A pool of properties diversifies the lender's exposure. Vacancy in one building is offset by performance in the others, which makes the aggregate income more stable than any single component.

The lender also gains recovery options. If the pool underperforms, it can look to any of the properties rather than being limited to the one that caused the problem.

Larger loan size reduces the lender's cost per dollar lent, which is part of why blanket structures can carry more favourable pricing than several small loans.

The release clause is the critical term

Selling one property from the pool requires the lender to release its security on that asset, and the terms for doing so are set in the loan agreement.

Release provisions typically require repayment of an allocated portion of the loan, often at a premium above the property's proportional share, which reduces the seller's net proceeds.

Some agreements also test the remaining pool after release, requiring the properties left behind to still satisfy coverage and value ratios before a sale can proceed.

What cross-collateralisation actually costs

Linking assets means a problem at one property can create consequences at all of them. A default triggered by a single building exposes the whole pool.

It also reduces flexibility over time. Refinancing one property individually, adding a second loan to it, or bringing in a partner on one asset all become lender consent questions.

Owners who anticipate selling individual assets or restructuring ownership often find separate loans worth their higher administrative cost for exactly this reason.

Where the structure fits

Blanket loans suit portfolios intended to be held together, where the owner expects to operate the group as a unit rather than trade individual buildings.

They fit less well where properties differ in strategy, where some are stabilised and others are being repositioned, or where partial exits are part of the plan.

Because the constraint arrives years after the benefit, the decision is best made against an explicit view of what the portfolio is meant to do rather than on opening terms alone.